Article- TReDs: Treading the Digital Path

March, 2017

Sundeep Mohindru, Founder & Director, Mynd Solutions, on the roadmap for success of Trade Receivables Discounting System (TReDS) and the way forward for Fintechs

Genesis

Mynd Solutions has been in the business of vendor management for large corporates. We have been working towards client needs for automating this service and felt the need for automation of vendor payments and financing needs. As RBI announced the need for such a platform in the Indian financial system, it reconciled with our thought process for digitization of trade transactions. This was a much needed step towards the growth of Indian economy as much as the growth of medium and small enterprises. This move by RBI is slated to bring all stakeholders – large corporates, their suppliers (small and medium enterprises) and banks on one platform to transact their business and all will benefit from the efficiency of the process and platform.

Mynd Solutions has been leader in offering advisory and outsourcing services to a number of clients, which include large corporates, banks and medium sized businesses. It was only appropriate for Mynd Solutions to pitch for the mandate given our expertise in dealing with the main stakeholders of TReDS on a daily basis. We also understand the complexities of working with large businesses which helped us win the confidence of RBI.

TReDS: A game changer

The main purpose of TReDS platform is to facilitate smooth flow of liquidity in the system and make available the finance at a competitive rate. As soon as the bills are raised by the MSMEs and approved by large corporates on TReDS platform, banks or financiers can bid for them based on the risk rating of large corporates. MSMEs will receive their dues from the banks or financiers without waiting for the credit period agreed with large corporate. The shortening of payment cycle and the smooth flow of liquidity through the platform will ensure that MSMEs do not lose out on business opportunities due to shortage of funds. The cost of funds will be reduced for MSME’s as banks will be bidding basis the risk rating of a corporate.

Banks will also benefit through the platform as cost of acquisition and servicing the business will reduce substantially. Further the MSME funding on platform will qualify for Priority Sector lending (PSL) criteria, thereby enhancing the compliance for the banks.

The current industry size is expected to be between INR 30,000 to 50,000 crs. Only three entities have received a node from RBI to launch their platforms, including Mynd Solutions. RBI has been meticulous in its endeavour to grant licenses to three different entities with their own expertise and skill-sets. All three have the capacity and capability to ensure that TReDS is a success story. We thus expect the industry to grow manifold in the near future thereby opening the gates for all players to cater to the market needs.

Further Scope

Almost all of the trade related transactions have already got digitised or are in the process of getting digitised. It is only the adoption by various stake holders that is taking time. The banks and fintechs are fine tuning these processes in digital formats and making it more attractive for the stake holders. This will improve the adoption of digital way of doing trade transactions. This disruption is happening globally and India is one of the front runners in this initiative under the aegis of RBI.

Mynd Solutions also works with clients across the globe with presence in over 60+ countries through its network. Through M1 exchange we are catering to an enlarged audience. Though TReDS is one product, we are looking at adding more products and services in M1 in the times to come. M1 has built-in capability for digitisation of trade products and intends to launch them in various phases. As M1 is a regulated entity, hence the launch time and the final products will be released after appropriate regulatory approvals.

Fin-techs: The new frontier

In this era where finance is riding the wave of technology, there are numerous examples in our daily life ranging from e-wallets to loan aggregators vide online portals, where Fintechs and banks together are servicing the growing needs of business and retail customers. Hundreds of small sellers have been funded based on their rating and past track record on the portals. In the normal scenario it would not have been possible to reach out to so many sellers, make detailed credit appraisals, create charge on collaterals and fund them in such a short turnaround time like 2-3 days.

Fintechs are supporting the entire banking eco system to transform and enhance the speed of serving customers. The speed of innovation and its implementation has grown manifold with deployment of technology in financial world by Fintechs.

Even as we speak Fintechs are working with banks on several fronts for example bringing down the cost of operations , improving the TATs of various processes, making new solutions, helping compliance and mitigating various operational risks, improving the customer experience , to bring new solutions which hitherto never existed because of various barriers of scale and reach.

Way forward

Fintechs bring to the table innovation and efficiency. This is the prime reason for the existence of Fintechs. Their lean and agile structure enables them to challenge the existing paradigms. Their survival and success depends on out of the box thinking and simplifying the lives of the stakeholders. Their main role is to eliminate mundane tasks and provide exciting user experience while bringing together the Gen-Y through re-inventing the wheel and making the life of people better. They should be able to support better governance by making processes

complaint and safe for the people. These are the key pillars which will make or break a Fintech enterprise.